Student loan debt is at a higher level than credit card debt for the first time, posing a very real problem. A large percentage of students will carry the debt with them for many years, yet sign up for the loans without realizing the full implications. As more students rely on student loans so the default rates rise. The national default rate now stands at 8.8 percent but the loans remain non dis-chargeable. Those who enrol in college and fail to complete their course are equally as liable for the accrued debt as those who graduate.
The consequences of defaulting
on a federal student loan are far reaching. Those who default will find that the federal government pursues the debt with no need for a court order, as it has the ability to recover outstanding sums through the IRS, social security benefits and wage garnishment. Defaulting will result in a blemished credit record making it more difficult to obtain other forms of credit or mortgages. It can even impede career prospects as over half of employers now check credit records prior to making an offer.
On Sept. 12 the U.S. Department of Education
released figures for 2009 student loan default rates. Default rates have increased across the board for both public and private educational institutions, but by far the highest level of defaults are from students that attended for-profit colleges, with a massive 15 percent. This is more than double the default rate for public colleges. The disparity in figures is partly explained by the disproportionate amount of federal loans taken out by students attending for-profit colleges.
Figures cited by the New York Times Magazine
show that although only 12 percent of students attend for-profit colleges they receive 25 percent of the federal student aid budget, in Pell grants and federal subsidized and unsubsidized loans. They also cite figures showing fewer than half graduate. Students attending public and private colleges have more aid options as institutional aid may be offered. Some colleges, primarily Ivy League, even guarantee no need for student loans due to generous institutional aid to those who qualify for financial aid.
The for-profit colleges aren’t necessarily attracting the top students though. They make their profits through obtaining federal student loan money and typically attract non traditional students from poorer backgrounds, or students that opt for distance learning or juggle college courses with a job. A recent opinion piece in the New York Times
“The government needs to take more stringent action against schools that use deception or unethical practices to attract unqualified students.”
Indeed, one of the main charges against for-profit colleges is the aggressive recruitment tactics they pursue and their willingness to accept unqualified candidates. The Dept. of Education is considering sanctions against colleges that employ such practices, stating
“Schools with excessive default rates may lose eligibility in one or more federal student aid programs.”
It also needs to vet the required standards of colleges certifying their applicants for federal loans more carefully. As all federal aid requires school certification, the department should ensure that standards of set qualifications are required before they begin to dole out federal money. If a college applicant is not adequately qualified for the course they intend to pursue then inevitably drop out rates will be high. However more emphasis should be put on initial acceptance rather than waiting until drop outs and defaults occur.
The government has a responsibility to vet the records of colleges to check both drop out rates and default rates, and thus investigate the reasons. It encourages students to pursue college as a route to enter well paying jobs in the workplace and “compete in our global marketplace.”
Many graduates default due to an inability to find work, or to enter the workforce at the level of remuneration they expected. In such instances the colleges should be investigated to check if they are adequately preparing their students for employment
In the same vein students should take more responsibility to ensure they understand the fiscal nature of student loans and their repayment options. They should assess the likelihood of the course they choose actually leading to a career which will be remunerated at an appropriate level to match their student loan repayment obligations. This requires financial education and careful advance planning.
There is also a responsibility to check out drop out rates, default rates, and graduate employment statistics, before selecting a certain college. Some students must ask themselves if they are really prepared to commit to a college degree course as college is not for everyone, particularly in light of the level of debt they are likely to acquire. Partially pursing a degree can result in debt which may not be serviceable without the necessary degree to obtain an income high enough to pay it.
Some for-profit colleges are simply misleading applicants as to the value of the course they offer. One example highlighted by the Next Student
is that of the for-profit Le Cordon Bleu college chain. Former students are suing the colleges parent company, Career Education Corp., for
“Misleading them about the value of a culinary education and their job prospects after graduation.”
One student recounts how recruiters convinced her to take out $30,000 of student loans to cover a seven month course which failed to result in a high paying job. When colleges publish figures showing the amount of graduates in employment they should distinguish between those in employment at low wages and those whose course has resulted in a related career at a reasonable salary rate.
The government intervened in 2010 by introducing reforms to make it more difficult for students to acquire credit cards and run up additional debt. Colleges were complicit in credit card companies promoting easy credit as many received a monetary payment for providing their student data base to companies, or allowing the companies to actively recruit potential cardholders on college campuses.
In the same way the government should intervene if for-profit colleges are putting profits before the educational standards they offer. Accepting unqualified students is not only unfair to the student who fails to meet the mark, but to other students on the course. Students who are unqualified to pursue a degree course are more likely to drop out or fail to secure a career with an adequate salary to repay their student loan debt. In such instances the only one to benefit is the college that has already received the federal money.